At Gym Lawyers, we help gym owners with legal compliance. One of the ways we do that is by educating gym owners and helping them follow the formality of the law. Formality in the law exists for a reason. When we are talking about adding a partner to an existing LLC, this formality is designed to provide a written history of the transaction to eliminate any questions or challenges in the future. Thus, as the current owner/member of the LLC, you need these four documents in order to properly add someone else. There may be other documents you need as well. Each situation is a little different. However, these are in almost every situation we’ve seen.
A Current Operating Agreement
First, you need a current operating agreement. Currently, you are a single member LLC and you should have an Operating Agreement that states that. That will protect you against any claims that arise after adding a partner. You have a written document that shows the period of time when you were the sole owner. This Operating Agreement will also outline the process of adding a new member. The adding processes doesn’t have to be anything formal. We just need to make sure you have the power to add a member and understand how to potentially value the sale of the LLC interest.
Letter Of Resolution
Second, you need a letter of resolution with yourself to add a member. Steps like this are why people throw their hands up at the law. We get it and we agree. But, you have to treat the LLC separate from yourself. The LLC has to hold a meeting and there must be written documentation that you agree to add someone to your LLC. This document will include the purchase price and percentage of interest you are selling.
Interest Purchase Agreement
Third, you need the formal Interest Purchase Agreement between you and the new partner. This is the written sales contract, essentially. This is kind of like the big written contracts you have to complete when you are buying something big, like a house. If someone is buying part of your Company, you want it very clear in writing what they are buying and for how much.
A New Operating Agreement
Finally, the new Operating Agreement. The final document is the Multi-Member Operating Agreement. These are the new Rules and Regulations for the LLC now that there are more than one owner/member.
It is a big deal bringing someone into your company. You don’t want to just give up ownership with a handshake. We’ve talked with plenty of gym owners who have done this. They call us because they are having a problem now with their partner and want to know what they can do. The process of removing a partner becomes much much more difficult when formal processes like the one above were ignored because, “It’s just not necessary for MY business.”